With governments facing soaring budget deficits as they seek to combat the global economic slump, tax authorities from around the world have agreed on a new cooperation plan to encourage tax compliance and counter tax evasion and abusive tax avoidance, with special focus on banks, wealthy individuals and offshore activities.

In his statement at the fifth meeting of the OECD’s Forum on Tax Administration, in Paris on 28-29 May 2009, the chair Pravin Gordhan, Finance Minister of South Africa noted that “The world faces an unprecedented global financial and economic crisis. The challenges posed are both economic and social. Governments need to find sustainable ways to finance the cost of exiting the crisis. To achieve this will require the engagement of all stakeholders: Governments, business and civil society. Revenue bodies have a key role to play in helping governments to achieve sustainable revenues.”

Building on the outcomes of the fourth meeting of the Forum on Tax Administration held in Cape Town, South Africa in January 2008, revenue bodies were pleased at the development of more trusting relationships with large business and their advisers but also agreed to work together to increase the effectiveness of tax administration and to fight tax evasion and abusive tax avoidance, with special focus on banks, wealthy individuals and offshore tax non compliance.

High net worth individuals pose significant challenges to revenue bodies and to the integrity of tax systems because of the complexity of their affairs. Though potentially big tax-payers, they are wealthy enough to engage in tax planning which may enable them to avoid significant parts of their tax obligations.

Recognising the increasingly global nature of tax non compliance the Forum on Tax Administration will act together at a global level to meet these challenges.

“Individuals who hide assets overseas can expect an increasing number of revenue bodies to cooperate and share information to ensure people pay their fair share to help fund governments worldwide,” said Douglas H. Shulman, Commissioner Internal Revenue Service U.S.A.

Two reports issued at the fifth meeting of the OECD’s Forum on Tax Administration, which brings together tax commissioners from 34 OECD and non-OECD countries, set out a roadmap for future cooperation:

‘Building Transparent Tax Compliance by Banks’ examines the role of banks in designing complex structured finance transactions that can be used to reduce tax payments through aggressive tax planning schemes for themselves or their clients.

‘Engaging with High Net Worth Individuals on Tax Compliance’ identifies risks and complexities associated with this group of taxpayers.

Banks pose a risk for tax administrations because they engage in tax avoidance on their own account provide schemes and shelters for others and fund aggressive tax planning.

“Banks can expect that revenue bodies will take an informed risk-based approach to managing their compliance and that this will increasingly include questions on how their corporate governance procedures deal with tax,” said Michael D’Ascenzo, Commissioner of Taxation, Australia.

Participants in the two-day meeting also discussed ways in which developed countries can help emerging economies to improve tax-collecting capacity and capabilities which will enhance the fiscal capacity of their governments.

“Tax plays a fundamental role in development through mobilising revenue, promoting growth, reducing inequalities and reinforcing governments’ legitimacy, as well as achieving a fair sharing of the costs and benefits of globalisation,” commented Pravin Gordhan.

Tax Commissioners also intend to prioritise offshore compliance issues, given the greater willingness of countries to engage in information sharing to counter tax abuses.

"We welcome the recent significant progress made in encouraging countries to adopt and in some cases, go beyond the OECD standards on exchange of information. We are very pleased at the developments reported by both OECD and non OECD countries in terms of strengthening their capacity for cooperation,” commented Dave Hartnett, Permanent Secretary for Tax, HM Revenue and Customs, United Kingdom.

In a communiqué, the tax commissioners said they would focus on examining how revenue authorities, banks and wealthy individuals interact on tax issues, with a view to finding ways to improve the collection of taxes due. Achieving good compliance requires finding the right balance between tax enforcement and taxpayer service,

For further information, journalists should contact Jeffrey Owens, Director of the OECD’s Centre for Tax Policy and Administration (Jeffrey.owens@oecd.org)

The press conference was held on Friday 29 May at 13.00 in Paris. See the webcast in English or French.